Market Report.
We’re starting a week in which the US government remains shut down. The main news focuses on the political changes taking place in Japan, home to the second-largest stock exchange in the world after Wall Street. Additionally, the peace agreement launched by Donald Trump in Gaza continues to make headlines and could signify yet another failure in Trump’s attempts to resolve conflicts around the globe. These are just a few details of what we bring in today’s report. Enjoy!
📉 Adding to the uncertainty, White House National Economic Council Director Kevin Hassett warned that mass layoffs of federal workers could commence if negotiations over a government shutdown fail to progress. This statement underscores the potential economic implications of stalled discussions and the urgency for a resolution. if President Donald Trump determines that congressional negotiations to resolve the government shutdown “are absolutely going nowhere,” layoffs for federal employees will commence, he said.
🏥 Republicans argue that healthcare discussions should happen in December, not as part of the current shutdown negotiations, further escalating the standoff.
🇯🇵 In Japan, this weekend, Sanae Takaichi has won the leadership election of Japan’s ruling Liberal Democratic Party (LDP) and is set to become the country’s first female prime minister. she is expected to be confirmed as prime minister in the upcoming parliamentary session.
📈 According to Bloomberg, Takaichi is often compared to Margaret Thatcher, her political idol, and some fear she could be Japan’s version of the disastrous Liz Truss premiership in the UK. Her economic policies, dubbed “Sanaenomics,” previously advocated for fiscal expansion and criticizing the Bank of Japan, but she has since taken a more pragmatic approach focused on day-to-day concerns.
💰 Takaichi is a proponent of expansionist economic policies and big government spending. The BOJ may adopt a more cautious and gradual approach to tightening, with the next rate increase potentially delayed until early 2023.
🤝 Takaichi has retained ties with reflationist-minded advisors who favor aggressive monetary and fiscal stimulus, contrasting with her predecessors who were more open to the BOJ’s efforts to roll back stimulus. Diplomatic considerations, such as pressure from the Trump administration on the weak yen, may also constrain Takaichi’s ability to openly criticize the BOJ’s policy as much as she has in the past.
🇪🇺 The euro area has weathered the Trump administration’s global tariff campaign so far, with no major economic shock and inflation under control. The euro’s strength against the dollar and yuan poses a threat to the bloc’s growth, as it makes exports less competitive. The economic powerhouses Germany and France are struggling, with near-zero growth expected. The Chinese yuan has also depreciated significantly against the euro over the past three years, putting European exporters at a disadvantage.
📉 This is the problem: the ECB has practically exhausted all the cuts it could apply. It is ahead of other central banks such as the BoE and the Fed. If it continues to cut rates, real interest rates will become negative in Europe. And even worse, we have seen slight increases in inflation in the EU area, if inflation returns, the ECB will be trapped, unable to cut rates that help its economy, and maybe even, having to raise them, increasing economic pressure.
🗳️ There are changes in the Macron government, but it looks more like a reconfiguration of the same faces, which suggests that political confrontation will persist in France, with agreements to achieve a convincing fiscal balance.
🇫🇷 French President Emmanuel Macron has appointed Roland Lescure as the new Finance Minister, replacing Eric Lombard. Several other senior members from the cabinet of the previous Prime Minister, Francois Bayrou, have been reappointed to their posts, including Bruno Retailleau at the Interior Ministry and Gerald Darmanin as Justice Minister. One notable change is the return of former Finance Minister Bruno Le Maire, who will now take on the Defense portfolio.
💼 Lescure’s appointment as Finance Minister indicates Macron’s desire to maintain a similar economic policy approach as his predecessor, despite the change in personnel.
🏦 China is seeking to entice back foreign capital amid dwindling inbound investment, but global investors remain wary of fundamental constraints like Beijing’s tight control over capital flows and lack of policy clarity. Speakers at the Milken Institute Asia Summit in Singapore highlighted that China remains too big for investors to ignore, but too controlled and opaque to fully trust.
📉 Foreign investors still have to navigate a system under extensive regulatory oversight and state involvement. Foreign direct investment into China plummeted from a peak of $334 billion in 2021 to outflows of nearly $154 billion in 2024, the lowest level in over two decades. However, some global capital is trickling back into China, with Chinese stocks luring back foreign investors amid the rise of tech startups and breakthroughs in high-tech industries.
🛢️ The OPEC+ bloc has decided to increase production by 137,000 barrels per day starting in November. This modest rise is aimed at reclaiming market share and has resulted in Brent futures trading around $65 a barrel. The decision reflects ongoing adjustments in response to global oil market dynamics.
📉 Crude oil prices have declined this year, with Brent and WTI falling around 8% last week, on concerns that global supplies are set to exceed demand. OPEC+ has been gradually unwinding its previous supply cuts throughout the year in an effort to regain market share from producers outside the alliance.
🤔 There was some disagreement between Saudi Arabia and Russia, OPEC+’s co-leaders, with Russia favoring a smaller adjustment to defend prices, while Saudi Arabia supported a larger increase.
📱 OpenAI has launched a short-form video app called Sora, which allows users to create AI-generated videos by typing in a prompt. Experts warn that OpenAI could face a flood of copyright lawsuits, as users are already generating videos featuring popular copyrighted characters and brands without permission.
⚖️ OpenAI says it will work with rights holders to block characters from Sora at their request and respond to takedown requests, but experts argue this approach may not be sufficient to avoid lawsuits. Some companies, like Disney and Universal, have already sued AI image creators like Midjourney for using their copyrighted characters without permission, setting a precedent for potential legal action against OpenAI.
🌍 Geopolitics: President Donald Trump is pressing Israel and Hamas to reach a settlement to the two-year conflict in Gaza, which has devastated the region. The first sign of progress will be whether Hamas follows through on Trump’s demand to release all remaining hostages, including those who have died, in exchange for Israel releasing Palestinian prisoners.
📜 Trump has laid out a 20-point plan to end the war, which includes Hamas’s ultimate disarmament. US special envoy Steve Witkoff and Jared Kushner are traveling to Egypt to participate in the indirect talks, which will be hosted by Egypt.
🏖️ Jared Kushner, President Trump’s son-in-law and senior adviser, proposed an investment plan focused on redeveloping Gaza’s waterfront property into a luxury resort, envisioning it as the “Riviera of the Middle East”.
💬 Netanyahu complained that Hamas’s offer to release hostages was “meaningless,” but Trump snapped at him, saying it was “a win” that he should take. An immediate ceasefire may still prove politically difficult for Netanyahu due to opposition from some of his far-right cabinet members.
📢 According to Axios, Donald Trump informed Israeli Prime Minister Benjamin Netanyahu that he “has NO choice” regarding the Gaza plan. Despite this, Netanyahu continues to oppose Trump’s position and has reiterated his commitment not to withdraw from Gaza, stating, “All hostages are expected back soon, but the Israeli army will remain in the depths of Gaza.” This exchange underscores the ongoing tensions and differing strategies regarding the situation in Gaza.
📈 Market View: US futures are close to historical highs despite the government shutdown. Mini S&P 500 futures are trading at 6,785 points, while Nasdaq 100 futures remain above 25,100 points.
💵 The dollar starts the week with notable strengthening, with the dollar index reaching 98.25 points, causing pairs like EUR/USD to retreat back below 1.17.
🇪🇺 In Europe, futures appear to be at similar levels to Friday’s close, having slightly retraced after an explosive rally that began on Wednesday. DAX 40 futures are positioned at 24,500 points, while Eurostoxx 50 futures are at 5,660 points.
📈 Crude oil prices are rising after three significant declines last week, with Brent crude positioned above $65, currently trading at $65.40. This is due to the OPEC+ agreement proposing a very low increase in production, which affects traders’ bearish estimates.
🌟 Gold continues to break records, with gold futures reaching nearly $3,970 per ounce in recent hours.
💰 Bitcoin has done it again, reaching a new historical high of $125,725 on Sunday, from where it has retraced to the current $123,980.
